China exports US$500 billion of goods to the United States, but imports only US$150 billion. US President Donald Trump figures that a trade war against China is easy to win, as it would quickly run out of equivalent retaliatory tariffs and would soon have to buckle to US demands. However, 85 per cent of the Chinese products hit by initial Trump tariffs are machinery and components used by manufacturers in the US. As for consumer goods, Americans will struggle to cope, not just with increased costs of substitutes but their availability. China is not exactly running out of retaliatory ammunition. The US has a US$38.5 billion trade surplus with China in services. If pushed into a corner, China may well put pressure on US banking, professional and other service businesses on the mainland. It also holds US$1.2 trillion of US treasuries. While it is not feasible to dump them without hurting itself massively, China may well decrease its holdings gradually. Much of the slack can initially be offset by other investors, but in an era of rising interest rates, this redress may be limited, putting pressure on the US economy. I’m ready to put tariffs on every import from China, Trump warns China controls 90 per cent of global supply of rare earth metals. These are vital to a variety of industrial sectors including health care, energy, electronics, and defence. Decreasing supply to US companies could cause massive disruptions. China appears capable of weathering this storm, as the US accounts for 19 per cent of its total exports and their value represents only 3 per cent of China’s economy, which has shifted more to services and consumption. Nevertheless, market economists reckon that every US$100 billion of imports affected by tariffs would reduce China’s economic growth by 0.1 to 0.3 percentage point. A broadly similar reduction of US growth is also expected. Full-blown tariffs of US$500 billion would thus shave off 0.5 per cent to 1.5 per cent of China’s growth. As the US tussles with other trading partners, it is likely to be hit harder. It would also hurt more US jobs than it helps. China-US trade war: gloves are off ... and MAGA hats could be next But the US is not alone in its concerns. It wants China to stop pressuring US businesses to share or transfer intellectual property, to improve market access and level the playing field, and to import more American products. These goals are bipartisan and shared by the European Union. The recent near-death by US sanctions of ZTE is a wake-up call for China to grow its own core semiconductor chip technology. To realise the “Chinese dream”, the nation needs to promote home-grown innovation, press on with opening up, and stimulate growth of domestic consumption. These national imperatives happen to tally largely with what Trump wants. There are signs China is toning down its rhetoric of trade war and national triumphalism. More can be done to change negative perceptions. In the South China Sea, for example, it can consider joint development of resources and fisheries with rival territorial claimants. At home, China can afford more space for freedom of expression. It can promote a more vibrant civil society, including humanitarian projects overseas, working as necessary with the United Nations. What is more, President Xi Jinping could nudge President Trump into taking a leadership role in negotiations for Free Trade Area of the Asia-Pacific (FTAAP), which includes both China and the US. This would show that China continues to embrace free and fair international trade but harbours no wish to displace the US as leader in the Asia-Pacific. Nevertheless, an early happy ending is unlikely. Until the full pain on US businesses and consumers kicks in, and before America’s midterm elections in the autumn, President Trump is likely to tighten the screws while China has to continue with measured retaliations. Brace, therefore, for a long, hot summer. Andrew Leung has had decades of experience as a senior Hong Kong government official in a variety of fields including finance, industry, social welfare and overseas representation